Mitigating the Risks Presented by Schedule UTP

How Prior Year Payments Can Potentially Offset Anticipated Liabilities

Mar 23, 2011, 14:00 ET from WTP Advisors

WHITE PLAINS, N.Y., March 23, 2011 /PRNewswire/ -- The 2010 tax season marks the first time that many corporate taxpayers will file Schedule UTP with their corporate tax return (companies with assets valued at more than $100 million).  The new form requires taxpayers to disclose their uncertain tax positions, including positions established in prior years which will be reported on a 2010 or later tax return.  It is inevitable that the IRS will issue assessments to some taxpayers as a result of their Schedule UTP disclosures.  A new article by tax experts at WTP Advisors, appearing in the current issue of the Tax Technology Association's Tax Tech eNews, explains how taxpayers can look to their own payment history to find ways to mitigate the impact of Schedule UTP.  

Schedule UTP follows the example of FIN 48 (now codified as ASC 740-10) which requires companies to disclose to investors the portion of any tax asset or liability that could be disallowed if challenged by the relevant tax authority.  The IRS now requires the same level of transparency in tax reporting, effectively providing the Service with a road map for examination.  For many taxpayers, the Schedule UTP disclosure requirement did not factor into the risk management analysis that accompanied a tax position for which FIN 48 reserves were established prior to 2010, but which will be reported on the 2010 or later tax return (without the reserve first being released).  This fact pattern can give rise to liabilities that might not have materialized without the Schedule UTP disclosure.  

"For these taxpayers, the question is not how to avoid the pending liability, but how to mitigate the impact," writes author Stephen O'Connell, Partner at WTP Advisors, an award-winning tax and business advisory consultancy. "A review of these taxpayers' estimated and actual tax payments history may reveal an opportunity to minimize the potential liability associated with first time compliance with Schedule UTP."

The computation of interest on federal tax obligations is among the most complex calculations in tax.  Amended returns, net operating loss and tax credit carrybacks, and proposed exam adjustments to prior tax years can significantly affect the amount of interest due on the prior liability.  Interest may also be due to the taxpayer if adjustments to the prior year result in an overpayment.  There are numerous rules that could suspend or restrict the accrual of interest for the period during which a payment is due or a refund claim is outstanding, and taxpayers have the right to a zero interest rate for any period during which they owed money and were also entitled to a refund.  

"Taxpayers should meet with an interest computational specialist any time there is a significant adjustment to the tax reported on a prior year return, or at least once a year, to determine how current events can affect the interest due on past obligations," advises O'Connell.  "This advice is particularly timely for first time filers of Schedule UTP who are anticipating assessments as a result of the new disclosure requirement.  Understanding their interest profile now is critical to determining whether expected liabilities can be offset in whole, or in part, by assets hidden in their payment history."  

WTP Advisors brings together a multidisciplinary team comprised of former leaders of the IRS' complex interest team and attorneys from the Department of Justice Tax Division to minimize the interest clients pay on their tax liabilities and maximize the interest clients can claim on refunds owed to them.  WTP Advisors uses the industry leading DMI InterestNet software to ensure that clients only pay interest that is properly due, and ensure that clients collect all interest due to them.  

WTP Advisors is a leader in tax and business advisory services for a global marketplace. Our highly skilled professionals equipped with years of industry experience, coupled with our cutting-edge technologies, make substantive and long-term differences to an organization's profitability. WTP Advisors is headquartered in White Plains, New York, with offices across North America, Asia and Europe.